Foreclosure Mess Battering Banks Thursday

By

Matt Phillips

Oct 14, 2010 10:18 am ET

Associated Press

There’s blood in the financial sector Thursday. It’s down 1.3%, amid drops of more than 3% at Bank of America, Citigroup and Wells Fargo. The ongoing concern seems to be the foreclosure-document mess. So how big a deal is the foreclosure mess?

Analyst Paul Miller of FBR Capital Markets estimates that losses related to this foreclosure issue could range between $6 billion and $10 billion for the entire industry. That amount could be easily absorbed, making it an issue to earnings rather than the capital foundations of the banks, he wrote in a note out Thursday. He wrote:

Further, it is unlikely that freezing the foreclosure process is the goal of investigations into foreclosure practices; rather, state officials are probably aiming to compel lenders to reduce principal loan balances, especially ahead of the mid-term elections. While we had previously believed that this was an election issue, we now think that this could materialize into a longer-term concern. Overall, we believe that the real cost to the industry is going to be the drag on the foreclosure process, which could delay any recovery in the housing market that might be on the horizon.

Of course every analysts has an opinion. In a note out earlier this week Barclays analysts wrote, “In our
view, these questions have the potential to significantly slow foreclosure proceedings in the near-term and potentially impact home sales and prices.”

And Andrew Marquardt of Evercore Partners detailed a list of concerns, including:

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